October 3, 2005
States Make It Easier to Collect (Online) Sales Taxes
Voluntary program for retailers goes into effect, provides compensation, immunity
WASHINGTON, D.C. - Online and other out-of-state retailers will find it substantially easier to collect sales taxes as the voluntary Streamlined Sales and Use Tax Agreement (SSUTA) went into effect on Saturday, October 1.
The SSUTA provides states with a mechanism to capture uncollected sales tax revenue from transactions that occur through electronic commerce and other remote sellers. Current estimates show that states lost at least $8.9 billion just from electronic commerce sales during 2004 alone.
18 states representing more than 20 percent of the nation's population have signed on the Streamlined Sales and Use Tax Agreement. The agreement is designed to provide simplicity and uniformity for out-of-state retailers. In exchange for voluntarily collecting remote sales taxes, retailers would be compensated for the costs of collecting taxes and released from liability resulting from sales tax collection accounting errors.
"The process of streamlining the nation's sales tax codes has been akin to taming a dangerous wild animal. You never knew what to expect next," said NCSL President and Illinois Senator Steve Rauschenberger. "The implementation of the streamlined agreement will allow states to recoup valuable resources that can, in turn, be put towards education, public safety, tax relief or other pressing state needs."
The 18 states that have voluntarily changed their sales and use tax codes to comply with the agreement include 13 states who are full member states - Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota and West Virginia. Five states are considered associate member states because the changes to their sales and use tax laws do not go into effect until after October 1, 2005. The associate member states are Utah, Tennessee, Ohio, Arkansas and Wyoming.
The agreement does not change tax rates. It provides states who choose to conform their tax codes with uniform definitions and simplified administrative and sourcing rules. Each state maintains its sovereignty on what items are subject to the sales tax and those that are not.
"The implementation of this agreement is truly an historic event," said NCSL President-elect and Texas Senator Leticia Van de Putte. "The magnitude of collaboration among the states that was required to put this agreement together is something this country hasn't seen in some time."
The U.S. Supreme Court ruled in 1967 and again in 1992 that states do not have the authority to require remote sellers to collect sales and use taxes in states where a retailer does not have a physical presence as the nation's more than 7,500 sales tax codes were a an undue burden to interstate commerce. However, the court did leave open the door for Congress to grant collection authority to the states.
By creating uniform standards and rules, the agreement states are hoping that Congress will grant them the authority to require retailers to collect sales taxes.
NCSL is the bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.
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